Liberty Media to Pay $2.62 Billion for 27% in Charter

Charter Communications Inc.'s shares have almost tripled since the end of 2009, when it emerged from bankruptcy protection with the deal that gave the private-equity firms their stakes. Photographer: Peter Newcomb/Bloomberg

March 19 (Bloomberg) -- John Malone’s Liberty Media Corp.
agreed to buy about 27 percent of Charter Communications Inc.
for about $2.62 billion, betting that the formerly bankrupt
cable company can thrive in an era of digital services.

Liberty will pay $95.50 apiece for about 26.9 million
shares and 1.1 million warrants for Charter’s private-equity
investors Apollo Global Management, Oaktree Capital Management
and Crestview Partners, according to a statement today. The
transaction is expected to close by mid-May.

Charter, the fourth-largest U.S. cable operator, has been
taking advantage of improving cash flow to refinance debt and
add customers through the acquisition of Cablevision Systems
Corp.’s Optimum West. Its shares have almost tripled since the
end of 2009, when the St. Louis-based company emerged from
bankruptcy protection with the deal that gave the private-equity
firms their stakes.

“We are pleased with Charter’s market position and growth
opportunities and believe that the company’s investments in its
high-capacity digital network, which provides digital HD and on-demand television, high-speed data and voice, will benefit its
customers and shareholders alike,” Malone, Liberty’s chairman,
said in the statement.

Charter’s stock rose 8.8 percent to $98.04 yesterday after
reports of the deal first surfaced. Liberty’s offer represents a
6 percent premium over the stock’s trading price before the news
broke. The shares gained an additional 2.4 percent to $100.38
today in New York, reaching the highest level since the
bankruptcy.

U.S. Return

For Malone, a billionaire who built Tele-Communications
Inc. into one of the country’s biggest pay-TV companies decades
ago, the move marks a return to the U.S. cable industry. In
recent years, he has focused on the European market, making
investments through his overseas cable business Liberty Global
Inc. That company agreed to acquire Virgin Media Inc. for $23.3
billion in cash and stock last month to expand in the U.K.

As part of today’s agreement with Charter, Liberty will
name four directors to Charter’s board. The company expects to
designate Malone; Liberty Chief Executive Greg Maffei; Liberty
Global Executive Vice President Nair Balan; and Michael Huseby,
chief financial officer of Barnes & Noble Inc., another company
backed by Liberty. Current directors Stan Parker, Darren Glatt,
Bruce Karsh and Edgar Lee -- who are affiliated with Charter’s
private-equity backers -- will resign from the board.

Board Agreement

Liberty also agreed not to attempt to take control of
Charter. Under the terms of the deal, it won’t increase its
ownership above 35 percent until January 2016 and 40 percent
thereafter. Liberty also said it won’t start a proxy fight for
more board seats, so long as its directors maintain their
positions.

While Liberty Global has 19.6 million pay-TV, Internet and
phone customers, mostly in Europe, and Malone directly holds a
4.8 percent stake in satellite-TV company DirecTV, his U.S.
cable investments have been limited since he sold TCI to AT&T
Corp. in 1999. Liberty Media holds an undisclosed stake in Time
Warner Cable Inc., the second-biggest U.S. cable company,
according to the annual report of Malone’s company.

Started by Paul Allen, a Microsoft Corp. co-founder, in
1993, Charter filed for bankruptcy protection in March 2009
after becoming overwhelmed by more than $21 billion in debt.
Allen’s stake dropped to 35 percent when Charter emerged with
about $8 billion less debt. He has since sold almost all his
remaining shares, according to regulatory filings.

The company agreed this year to acquire Optimum West for
$1.63 billion, gaining more than 360,000 customers in Montana,
Wyoming, Colorado and Utah. Charter currently serves about 5
million customers in 25 states.